INTEREST RATES FOR DUMMIES:
How do Interest Rates Affect Credit?


So you often hear financial experts fussing over the Federal Reserve Boards decisions to reduce, maintain, or increase interest rates and you think, How could this concern me? Should I even be bothered by it at all? The answer: Yes, it does affect you. When rates rise or fall, the prices of consumer goods are sure to rise and fall with them. If you are currently paying off a loan or are still planning to get one, then the more you should be mindful of interest rate trends and movements.

Most loans are dependent on a prime rate, which is the interest rate the Federal Reserve alters or keep when it meets every six weeks. So, if you want to make the most out of your loan, you will have to learn the basics.

The sound of studying and tracking interest rate behavior sounds like rocket science, yes. But its actually simpler than it looks.

- If the interest rate is moving upward, opt for a fixed-rate loan. A fixed-rate loan is a loan whose interest rate does not change throughout the course of the program. If youre already operating within a loan scheme that does not have a fixed-rate, try talking to your creditor if you can convert.

- If the interest rate is moving downward, take out an adjustable-rate loan. By this, you end up paying less and less monthly because the interest rate placed against your loaned amount is decreasing.


- If the interest rate is moving upward, and you have to pay off your credit card bills, choose a fixed rate home equity loan. This will reduce your monthly obligations and even help beef up your credit score.

- If interest rates are dropping and you have credit card bills to pay, consider a line or credit loan or a home equity loan. Both loans move in conjunction with interest rates and, under this condition, you are likely to effectively lower your loan obligations. Just remember, though, that such loans are secured against your home.

Now that wasnt so difficult to read was it? See, you cant escape the effects of interest rates on your daily life, much more on your credit. But, you can do something to make them work for you, not against you.